When a decedent leaves his or her inheritance to a family member or friend, that new heir gains the estate, and all the taxes that may come with it. In some cases, you may be able to acquire estate tax exemption, especially if the estate is worth less than $5 million dollars. Larger estates that supersede this value will have an estate tax tacked onto the inheritance. To determine the value of your inherited estate, the probate court will send professionals to add up everything that the decedent owned on the day of his or her death.
Your inheritance, if you are the sole heir, will include all assets, property, investments, and businesses of the deceased person concerned. Heirlooms, cash, and investment returns are all included here as well. The court-appointed executor is in charge of totaling up all of these properties. Once the total of all the assets is reached, the court will determine whether or not you will need to pay the estate tax. While estate tax is related to your inheritance, it is not actually an inheritance tax. You don't have to pay taxes on the money you receive through an inheritance.
The estate tax is levied on the actual estate, which means that it is paid for out of the estate, instead of out of your pocket. What you receive as your inheritance is what is left after all the estate taxes have been paid. If you are required to pay an estate tax on your inheritance, there are some deductions that you should know about. If you are a spouse of the deceased, then you probably qualify for an unlimited marital deduction. This means that you can inherit your spouse's entire estate without any taxes.
Also, there is an unlimited charitable deduction on an estate tax. This means that all assets that a decedent leaves to charity are tax-free and won't count towards the estate that can be taxed. Also, any unpaid debts, funeral expenses, or estate administration fees can come from the gross estate, and will deducted out of the total value of the estate. In some cases, after these responsibilities have been paid out, you may be under the limit, and not need to pay any estate taxes at all. While the federal government won't issue an inheritance tax on your new found fortune, some state governments do issue these types of things. In these cases, you will need to file your state tax return and include this in the documentation.
The inheritance tax is normally levied on each individual beneficiary of the estate. This means that it is not paid out of the estate, like an estate tax is. Instead, the people who inherited the money will need to pay the taxes on what they received. When the state imposes an inheritance tax, they will not also impose an estate tax in conjunction. If you are worried about having a chunk of your estate broken off automatically when you receive your inheritance, you can pay the estate taxes to the federal government in installments. Some state governments provide a similar plan for their state inheritance tax. You will need to talk to your local government about this option, or speak to your probate lawyer.
To set up installment payments on a tax, you have to fill out a form and submit it to the appropriate location. For an estate tax, you will need to send the forms to the IRS. The form, known as a Form 706, can help you to apportion the taxes and pay them monthly. You can often choose whether you want to make two, three, and four, all the way up to ten installments to pay the taxes out. Make sure to talk to your probate attorney when you are dividing the estate, and make sure that your executor is carefully looking into ways to save you money. This way, you will spend less on taxes and be able to preserve more of your inheritance for more important spending ventures.